Monday, February 8, 2010

Demand curve and revenue curve under monopoly

Since there is only one firm in the industry, the firm’s demand curve is the industry demand curve. So, the demand curve in monopoly will have negative slope. A monopolist has to face the demand of the consumer. Thus, the monopolist desires to increase the sale by decreasing the price. That is, in order to increase price the monopolist must be ready to sacrifice some amount of sales. So, in monopoly the demand curve will be downward sloping. This can also be illustrated graphically.
There is some difference in the concept of demand curves in perfect competition; the demand curve of an individual firm is parallel to horizontal axis while the demand curve of industry is downward sloping. The main reason for the horizontal parallel demand curve of an individual firm in perfect competition market is that the individual firm has to face the change in demand and the individual firm has no role in determining price of a commodity, but can only make adjustment in the quantity of commodity produced (supplied). But in monopoly, individual firm itself is an industry, so the demand curve of it is downward sloping.

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